“Grim outlook” sure sounds serious.If Indian banks are facing “subdued”
prospects, then Qatar has to be in even worse shape.

The article’s argument appears based on the following:

Moody’s has placed Qatar’s banking sector on
ratings watch negative, a change from stable.The other rating agencies have taken steps as well.S&P bumped Qatar’s sovereign rating to
AA-.Fitch has placed Qatar’s AA
sovereign rating on its watch list.In
case you don’t know, investment grade extends all the way to BBB- or Baa3. Qatar
banks are more dependent on external funding than earlier.

External funding may be withdrawn and the
Qatar government’s ability to support its banks has weakened.

Qatar’s banks
have a “lot” of cross border assets in the GCC and MENA. AA isn't sure if this is a credit warning about these borrowers ability to repay or about government action to prevent payment.

Moody’s expects
non-performing assets to increase from 1.7 % at FYE 2016 to 2.2% by FYE 2018. Moody’s
also expects ROA to decline from 1.7% for fiscal 2016 to 1.4% for fiscal 2017.

GN’s
assessment seems to be based on two things.

First, some negative things might
occur, e.g., external funding withdrawal, ratings drop, etc. At its current
rating Qatar could drop a notch or two and still comfortably be investment
grade.More importantly, things that
might occur do not necessarily occur.Or
when they do, there may be solutions. Those with long memories or mentors who
lived in exciting times will remember that when international banks cut off
funding for the Kuwaiti-owned banks in Bahrain following the Iraqi invasion of Kuwait, the KIA rode to the rescue.

Second, there is negative trend in two
metrics:ROA and ROE. It’s not clear to
AA if GN believes that the change in NPA (a 30% increase) or ROA (an 18%
decrease) is driving Qatar banks to “grim” territory or whether it is the
absolute levels of these figures.

Two things to note
about that report.

It covers listed
banks and not all banks.Despite the
sample composition, the report should provide a directional idea about relative
performance.

That presumably explains
much if not all of the difference between KPMG’s figures and Moody’s who are including
unlisted banks in their calculations.

GCC
Banking Performance

ROA

NPL

Country

2015

2016

2015

2016

Bahrain

1.0%

1.1%

10.7%

9.8%

Kuwait

0.9%

1.1%

2.1%

2.1%

Oman

0.5%

0.8%

1.9%

2.0%

Qatar

1.8%

1.5%

1.7%

1.9%

Saudi

2.0%

1.7%

1.1%

1.3%

UAE

1.4%

1.3%

4.1%

4.0%

Based
on the above data, it would seem that using GN’s definition things are at least
somewhat grim in the UAE and even more so in Bahrain, Oman, and Kuwait.

Perhaps, this is Qatar’s way of
re-integrating itself into the GCC?

But there’s more.

Notice that the chart in the GN’s story shows
a decline in ROA since 2011 well before sanctions on Qatar had been “born” or
had molars to bite, though this may be a testimony to the wise leadership's ability to position for necessary future action.

A January GN article quotes Moody's projections for GCC aggregated banking performance in 2017. Using that projection as a baseline, it would appear that the "grim" Qatar banking
sector will outperform the average GCC bank.

As to the health of GCC
country finances in a low energy price environment and thus their ability to
support their local banking sector and economy, there’s a Fitch 5 April report
that provides some insights.

Based on
its forecasts for the average 2017 oil price and country projected spending, among
the GCC states only Kuwait (USD 45) and Qatar (USD 51) have a break-even price
below Fitch’s estimated USD 52.50 barrel price for oil.Kuwait’s break-even price was influenced by
its “high investment income”.

Bahrain is
at USD 84, Oman at USD 75, KSA at USD 74, and Abu Dhabi at USD 60.Details here.

Mark AA as skeptical on GN’s assessment which
seems more like foreign policy advocacy in search of a “victory” than hard
analysis.

It's a bit early to make a call on the effectiveness of sanctions or of Qatar's workarounds.

A grim scenario may occur, but Qatar has abundant resources to fight sanctions and at present retains access to world financial markets. One could the case of other sanctioned countries with less financial resources or access to financial markets to draw some conclusions about ability to weather a storm. Hufbauer et al "Economic Sanctions Reconsidered" may be a useful entry point to such a review.

There is is a more nuanced less alarmist view on Moody's report--as appears to be the usual case--at Abu
Dhabi’s The National. No “biting” no scenarios of doom.